J&K to become first mover; to bring petrol, real estate, electricity, liquor under SGST

High-level panel set up to prescribe modalities, formal announcement likely in budget presentation in Jan’18

JAMMU: While it might had been the last state to join the Goods and Services Tax regime, seven days after its implementation in rest of the country, Jammu and Kashmir may very well become the first state to bring petrol, electricity, liquor and real estate under the state goods and services tax (SGST).
The state legislative assembly on July 7 had passed the state GST Bill 2017 amidst opposition boycott, a week after all other states had adopted the new tax regime, however, if internal sources within the state government are to be believed, Jammu and Kashmir will be leading the way in extending the purview of GST to all sectors, including petroleum, alcohol and real estate and may also serve as a template for other states.
The formal declaration in this regard is likely to be made as soon as two month later, when the Finance Minister Haseeb Drabu will present the state’s budget for 2017-18, in the first week of January, 2018.
“A formal decision will be the part of the Jammu and Kashmir’s annual budget for 2017-18, scheduled for presentation in January, 2018,” sources said, adding that resources gathered by this exercise will help the state to earn more than the current figures from these sectors, which it doesn’t have to share it with the centre.
Since these items- petroleum, alcohol and real estate- are not part of the GST framework, the state will not have to share the revenues even while it avails of the efficiency associated with this piece of indirect tax reform.
A J&K government official said on condition of anonymity that a high-level panel has been set up to prescribe the modalities, helped by the exclusive privileges the state enjoys in Country.
Once implemented, businesses will be able to benefit from tax rebates which, at present, are not available to them. For example, businesses can offset part of their final tax liability against the state GST (SGST) paid on the electricity consumed or on purchase of real estate for business. It will offer a competitive edge for businesses operating from J&K, incentivizing new businesses in the state.

Experts said the move is to replace value-added tax (VAT) on fuel, state excise duty on liquor, state-level duty on electricity and stamp duty on land with SGST.

While inclusion of these items in SGST will be beneficial, experts also pointed out that it has to be achieved without making the GST structure more complex.

Under the new tax regime, all states in country follow a dual GST structure, where the tax rate is divided equally and shared by Union and state governments.

If SGST and CGST rates are unequal, it could pose challenges in settling taxes on inter-state trade.

The J&K government’s panel will look into all implementation issues.

Select petroleum products, liquor, real estate and electricity were kept out of GST at the final stage of consensus-building during the early days of the Narendra Modi government as part of a ‘give and take’ deal to win the support of states for the historic tax reform.

Agreeing to keep these items out of GST and full compensation of any revenue loss arising from GST rollout from the projected growth rate for five years had helped finance minister Arun Jaitley generate consensus.

Jaitley has already promised further simplification of GST by the GST Council in due course. Delivering a lecture at Harvard University on Thursday, he said there was a strong case to bring real estate under GST as the one sector where maximum amount of tax evasion takes place.

The matter will be discussed in the next meeting of the GST Council, to be held on 9 November.